UPDATE 1-NY state offers tax credit to first-time homebuyers

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NEW YORK Aug 10 (Reuters) - New York state will offer first-time homebuyers a new tax credit worth one-fifth of their yearly mortgage interest costs, building on the U.S. government's program to spur the housing market, Governor David Paterson said on Monday.

The state's mortgage agency, which helps low- and moderate-income individuals buy homes, will run the new Mortgage Credit Certificate program. The tax credit will only be offered to people who qualify under the agency's income and purchase price limits, the Democratic governor said in a statement. People who get their mortgage from the state agency will not qualify.

The federal $8,000 tax credit for people who are buying their first home expires on Nov. 30.

New York's metropolitan housing market has held up better during the downturn than others around the nation.

The New York index is still more than 73 percent higher when compared to January 2000, according to Standard & Poor's/S&P Case-Shiller Home Price indices for May, although it has fallen nearly 20 percent from the June 2006 peak.

New York is the first state to offer this kind of tax credit, a Paterson spokesman said, though other states offer extra help to home buyers. For example, California in March began offering a $10,000 credit for new home purchases.

A New York homeowner paying 5.5 percent interest on a $150,000 mortgage would pay about $8,200 in interest in the first year, according to Paterson's estimates. The new state tax credit would be worth $1,640, he said.

The remaining 80 percent of the mortgage interest will still qualify as an itemized tax deduction on federal returns.

New York will use about $80 million of its private activity bond program to pay for $20 million of the certificates.

The Internal Revenue Service sets limits on how much tax-free debt states can sell for private activities. (Additional reporting by Lisa Lambert in Washington; Editing by Kenneth Barry)